Arm’s length

Family and related-company sales meet this test, because many tax rules turn on it. Sections 69, 84.1 and 160, for example, apply by reference to persons not dealing at arm’s length. Whether the parties are at arm’s length decides whether those rules are in play.

How section 251 sets it

• Paragraph 251(1)(a): related persons are deemed not to deal with each other at arm’s length
• Paragraph 251(1)(b): a taxpayer and certain personal trusts are deemed not to, where the taxpayer or someone not at arm’s length with the taxpayer would be beneficially interested in the trust
• Paragraph 251(1)(c): in any other case, it is a question of fact whether unrelated persons deal at arm’s length

The question of fact

The CRA’s folio says the courts have used criteria such as whether a common mind directs the bargaining for both parties, whether the parties act in concert without separate interests, and whether there is de facto control. Not all three need be met in every case. Ask which test applies to your parties first by checking whether they are related persons. See also selling to a child’s company.